No Coverage for Hannibal Lecter, Federal Judge Says: Expansion of the Scope of a Homeowners’ Policy’s “Intentional Loss” Exclusion to the Duty to Defend

This installment of the Insurance Commando Blog discusses a case related to its July 14, 2014 blog entry, in which we discussed the “intentional loss” exclusion in a first-party homeowners’ policy. IDS Prop. and Cas. Ins. Co. v. Crawford. In that case, the insured set fire to her house in a suicide attempt. Judge Ronald Leighton of the United States District Court, Western District of Washington, ruled that the “intentional loss” exclusion applied because the insured’s intent to damage her property “must be inferred from her actions” and noted that houses are “necessarily damaged when they are set on fire.”

In this installment, we discuss another Judge Leighton decision, Metropolitan Prop. & Cas. Ins. Co. v. Nieto. Judge Leighton again applied his practical approach in ruling, among other things, that a homeowners’ policy’s “intentional loss” exclusion applied to bar coverage for a barroom fight in which one of the insureds bit the claimant’s nose. He did not buy the argument that when in a fight, negligently causing bodily injury during the fight could trigger the duty to defend. So, judge Leighton has applied his practical approach to both first-party and third-party claims under a homeowners’ policy.

Washington duty to defend law has been anything but friendly to insurers. See, e.g., Expedia, Inc. v. Steadfast Ins. Co. (holding that insurer cannot look outside four corners of complaint when determining its duty to defend, thus disallowing any reasonable exceptions to look to extrinsic evidence); American Best Food, Inc. v. Alea London, Ltd. (finding duty to defend for alleged post-assault negligence stemming from bar fight); Woo v. Fireman’s Fund Ins. Co. (holding that although insured dentist’s actions of placing boar tusk flippers in unconscious claimant’s mouth, and taking photographs of same, were intentional, “it is conceivable that Woo did not intend that conduct to result in [the claimant’s] injuries.” Woo also has the distinction of holding that “it is not clear that [the claimant’s] complaint does not contain allegations that are not covered by Woo’s policy and Fireman’s had a duty to defend him under the bodily injury portion of the general liability provision.” Woo, 161 Wn.2d at 64-65 (emphasis in original).

The above notwithstanding, Nieto might make it easier for insurers to argue the applicability of the “intentional loss” exclusion. Following Washington law, Judge Leighton held that a homeowners’ policy’s “intentional loss” exclusion barred coverage when the insureds were alleged to have started, and joined in, a fight. Mr. Nieto was alleged to have bitten off a part of claimant’s nose in the fight. Nieto, 2014 WL 2987604 at *1. Judge Leighton ruled that such conduct was not negligence. Id. at *3.

In Nieto, Metropolitan insured Mr. and Mrs. Nieto under a homeowners’ policy. The underlying complaint arose out of a bar fight between the Nietos and the claimant and his girlfriend. Mrs. Nieto was alleged to have pinned the claimant’s girlfriend to the ground and punched her with closed fists. When the claimant tried to help his girlfriend by attempting to pull Mrs. Nieto off of her, Mr. Nieto wrapped his arms around claimant, who head butted Mr. Nieto in the lip. Mr. Nieto then bit down on claimant’s nose, partially severing it.

The claimant sued the Nietos, the bar, and the bartender, all for negligence; the claimant did not allege intentional conduct on behalf of the Nietos. Metropolitan defended under a reservation of rights and then brought a declaratory judgment action before Judge Leighton on the basis that the policy did not require Metropolitan to defend or indemnify the Nietos for their intentional and criminal acts. Metropolitan argued that the underlying complaint did not allege “bodily injury” caused by an “occurrence.” The policy defined “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. . . .” Metropolitan also argued that the “intentional loss” exclusion barred coverage. This exclusion barred coverage for bodily injury” “reasonably expected or intended” by the insureds or which was the result of the insureds intentional or criminal acts. The exclusion applied even if the insureds “lack[ed] the mental capacity” to govern their conduct.

Judge Leighton ruled that, despite the breadth of an insurer’s duty to defend or indemnify, the underlying complaint did not allege a loss triggering the duty to defend. Judge Leighton concluded that the complaint did not allege an “occurrence.” Citing Washington law, Judge Leighton stated that an accident is never present when a deliberate act is performed unless some additional, unexpected and unforeseen happening occurs that produces or brings about the result of injury. Detweiler v. J.C. Penney Cas. Ins. Co. Judge Leighton stated that starting a fight, or joining a fight, and biting another’s nose, are all deliberate acts and no unforeseen event can render them accidental. He commented that the complaint “strategically” couched the Nietos’ actions in “negligence” terms, but that word choice “cannot conceal the intentionality of their acts.”

Judge Leighton also ruled that the policy unambiguously excluded intentional actions from coverage. He stated that even if the specific act of biting the claimant’s nose was unintentional, causing some bodily injury is a “reasonably expected” consequence – and often the actual objective – of starting or joining a fight. For this additional reason, Judge Leighton concluded that the underlying complaint’s allegations did not trigger the duty to defend or indemnify.

Finally, Judge Leighton ruled that the Nietos’ alleged intoxication did not eliminate their ability to form intent. Washington law permits intoxication as a defense to intent only where it has “destroyed a person’s mental capacity to form the requisite intent to do the act.” U.S.F. & G. Ins. Co. v. Brannan. He noted that there was no evidence that either of the Nietos was intoxicated to the point of destruction of mental capacity. He also noted that the policy excluded coverage for intentional acts even if the insureds lacked the mental capacity to govern their conduct.

Judge Leighton has again used a practical approach in his ruling in Nieto. He concluded that there was no “occurrence,” and even if there was, the alleged conduct was excluded. He would not, under the particular facts of Nieto, parcel out negligent conduct during the course of a clear assault. He also would not strain the reading of the complaint’s allegations to rule that there was a duty to defend because it was conceivable that the Nietos did not intend the harm of their actions, like the Washington Supreme Court did in Woo. (We wonder why this type of reasoning was not employed in Woo, where the Washington Supreme Court agreed that Dr. Woo acted intentionally, but held that he was entitled to a defense simply because he conceivably did not intend the claimant’s injuries of emotional distress.) Judge Leighton also did not find sufficient evidence of intoxication to negate intent. Under Nieto, insureds can no longer circumvent the exclusion by trying to “parcel out” intent from injury.

We leave you with a few words of caution.

First, Nieto is a case involving a bar fight. Although Alea London held that post-assault negligence can trigger the duty to defend, most cases addressing whether there is coverage for allegations of fighting have held that there is no coverage for such allegations. See, e.g., McAllister v. Agora Syndicate, Inc. and cases cited therein. Thus, insurers must be careful not to over-extend Nieto to losses in which distinct post-assault negligence is alleged. For example, if an insured is alleged to have repeatedly punched Claimant 1 in a barroom fight and then, while driving away from the bar is alleged to have negligently struck Claimant 2, then Nieto may be inapplicable and Alea London may mandate that the insurer defend.

Second, Nieto is a federal court decision. Insurers that are parties in the state courts of Washington may have a more difficult time convincing a judge that Nieto applies, especially with the presence of Woo and Alea London, even though we think the reasoning is sound and the result is correct.

Third, the insurer in Nieto defended under a reservation of rights. Thus, although Nieto encourages insurers to look at a loss from a more practical standpoint, and does not force insurers to be rigid in their analysis even if the results are impractical, denying a claim outright could expose insurers to the perils of Washington bad faith law.